Category: APJT Archive

In the First and Second Supplements to Volume 26 of the Inland Revenue Board of Review Decisions, 20 cases were reported, including five on salaries tax, four on profits tax, two on property tax, and two on personal assessment. Of these, six cases involved penalty tax. These cases are reviewed in this article....

This article focuses on the China tax considerations with respect to holding structures for outbound investments made by Chinese entities,2 including the decision on a direct or an indirect investment structure, the location of the intermediary holding company, the treaty network, and the foreign tax credit and domestic anti-avoidance rules....

Foreign investors investing in Chinese companies will often use one or two tiers of intermediate offshore holding companies (“SPVs”). These SPVs are often established in jurisdictions that have low/no income tax on dividends received, exempt capital gains from taxation, and do not impose withholding tax upon further distributions to foreign investors. Paying tax in China on gains from the disposition of the equity interest in the Chinese company can often be avoided by disposing of the shares in the SPV rather than the Chinese company. However, indirect equity transfer is being closely scrutinised by the Chinese tax authorities. In recent years, China has made greater efforts than ever in collecting tax revenue from indirect transactions of local investments....

Trade between related parties constitutes a significant portion of the global merchandise trade. In the US alone, related party trade accounted for 40.8 per cent of total trade in 2010.1 Although there is no definite statistic on how this relates to total world trade, the United Nations Conference on Trade and Development (UNCTAD) estimated that in 2010, foreign affiliates of multinational corporations accounted for more than 10 per cent of global gross domestic product (GDP) and one third of world exports.2 This suggests that related party prices play a significant role in assessing company profits as well as the customs value of individual goods crossing through borders. This figure may likewise highlight the relatively high risk of a company being targeted for compliance by two separate government authorities – the tax authority and the customs authority. Given the complexities and the inherently opposing forces of transfer pricing (TP) and customs, getting it right for both authorities may pose a challenge....

Tax havens typically provide generous tax incentives under the veil of strict bank secrecy laws, often allowing these entities to commit tax evasion and fraud. The OECD has sought to prevent these harmful tax practices by recommending that states negotiate agreements to allow for tax information exchanges. This paper examines whether the tax information exchange agreements (TIEAs) negotiated by the Cook Islands have delivered on their promise to improve transparency or whether these agreements were merely negotiated with the intention of improving the Cook Islands’ reputation. Document analysis was used to critique 14 of the 16 agreements that the Cook Islands currently has in place. The paper concludes that although TIEAs are a step towards improving transparency, they have failed to fully change the nature of offshore financial activities in the Cook Islands. By signing these agreements, the Cook Islands has improved its international image without appearing to have effectively committed itself to any real obligation to share information. This...

The new Social Insurance Law (“SIL”) was issued on 28 October 2010 and took effect on 1 July 2011. Under the new SIL, any expatriate working in a mainland China registered company is required to make monthly social insurance contributions to the local authority. In this article, we review the history and development of China’s social security system for foreigners, including for Hong Kong residents; discuss the pitfalls of the existing legislation in respect of social security contributions; and analyse both the employers’ and employees’ considerations from difference perspectives....

China has developed its tax administration and collection regime for non-tax resident enterprises (“non-TREs”1) in recent years, particularly since 2008 following the enactment of the new Corporate Income Tax (“CIT”) Law. To some extent, the complications in China’s tax scheme and the inconsistent local interpretation of circulars by tax authorities have further increased uncertainty about the tax situation and thus have created the need for non-TREs to gain an in-depth understanding of China’s tax regime in order to ascertain the tax position in China and the tax cost of doing business with or in China....

“Outsourcing” is a recent popular term. What does it mean? Why does the Chinese Government consider it so important? What tax incentives are available for outsourcing? The authors will answer all of these questions in this article....

In Hong Kong, there are two different sets of authority that respectively govern the preparation of financial statements and the determination of assessable profits. Apart from the listing rules and relevant provisions contained in the Companies Ordinance Cap.32, where applicable, the preparation of financial statements is governed by the Hong Kong Accounting Standards (HKAS) and the Hong Kong Financial Reporting Standards (HKFRS) promulgated by the Hong Kong Institute of Certified Public Accountants (HKICPA), whereas the assessable profits for Hong Kong profits tax purposes are determined by the provisions contained in the income tax legislation (i.e. the Inland Revenue Ordinance (IRO) Cap.112) and relevant court decisions. In practice, the ascertainment of assessable profits starts off from the profit before taxation that is reported in the income statement. Taxpayers then make the necessary “book-to-tax” adjustments from the profit before taxation should there be any provisions of the IRO that prescribe a treatment that is different from the HKAS or the HKFRS and...

Li & Fung (Trading) Limited (Li & Fung) had its head office in Hong Kong, and many of its most senior staff were based there. Li & Fung normally entered into contracts with its customers under which it was appointed as the customers’ buying agent. The agency agreements specified the services to be provided by Li & Fung to its customers in connection with the manufacture, sale, and purchase of goods. Such services included finding suppliers to manufacture goods and selling the goods so sourced to Li & Fung’s customers as buyers. Li & Fung managed the sourcing and manufacturing processes to ensure that satisfactory goods were supplied to its customers.Li & Fung had entered into contracts with its overseas affiliates under which the latter had undertaken to perform certain services. These overseas affiliates usually had their own staff. Li & Fung engaged or acted through these overseas affiliates or sourcing companies in performing those services which it had contracted...